A few thoughts on the European Commission’s Internet of Things Sector Inquiry

The European Commission has published its final report on the sector inquiry into the consumer Internet of Things (IoT), i.e., into “smart devices” like wearables, smart speakers or smart home products. The document is a pretty crisp summary of the consumer IoT as the Commission sees it and contains quite a number of hints on what players in the sector should pay attention to. Here a few initial thoughts on three topics I found particularly noteworthy.

As usual with these things, it took some time to finalise the sector inquiry. It was launched by the Commission in July 2020, followed by both a preliminary report and a public consultation in June 2021. Yesterday, the Commission published its final report (12 pages) and an accompanying staff working document (118 pages!). The two documents touch upon a number of issues, of which this post picks out three: Intermediaries, data and standardisation.

The role of gatekeepers intermediaries

The report emphasizes – to an extent that might even be surprising – that voice assistants and smart device operating systems play an important role in the consumer IoT space as intermediaries between users and devices/services. Interestingly, both the report and the staff working document avoid the word “gatekeeper”, but one could get the impression that is exactly what the Commission might mean: The regulator identifies Google, Apple (both via voice assistants and operating systems) and Amazon (voice assistants) as the most important intermediaries.

So, essentially, it seems to be about big tech once again. Only Meta/Facebook (and maybe Microsoft) is missing from the “usual suspects” in the debate about (antitrust) regulation of big tech. With regard to consumer IoT, the Commission identifies potential concerns around, inter alia, pre-installation settings, prominent placement and exclusivity. The upcoming Digital Market Acts should be able to address at least some of these concerns as far as they relate to platforms. Unsurprisingly, the Commission notes that its findings will “feed into the ongoing legislative debate on the scope of the Digital Markets Act”, and that might well strengthen the case for including voice assistants in the Digital Markets Act.

The Commission also identifies a potential concern about disintermediation, which essentially means that intermediaries have and control the direct user relationship, in turn leading consumer IoT companies to fear that they will lose brand recognition and their own user relationship. This concern might be more difficult to address with the Digital Market Act as it currently stands. But at least building on what German courts have ruled in favour of third-party sellers originally blocked by Amazon, the courts might be willing to deal with certain disintermediation issues, e.g., when apps are removed from an app store without proper justification or discussion.

Data, again?

Yes, we have just written about the relationship between data protection and antitrust law. And we certainly do not want to bore our readers. Still: The Commission has found that voice assistants are at the centre of consumer IoT data collection, and that some companies claim that they do not have consistent and immediate access to the relevant data on the use of their IoT products/services.

These findings once again emphasize the importance of data access and of the interplay of data protection and antitrust laws. While antitrust regulators in principle support interoperability and data portability, data protection laws put practical limits on those. At the same time, intermediaries may have much broader access to data than those companies who offer IoT products/services in the first place. In Germany, the last competition law amendments introduced the right to request data access under certain circumstances. However, how this will play out in practice remains to be seen. At the EU level, the Digital Markets Act will also contain provisions on data access, but these will only apply to platforms (and possibly voice assistants) of a certain size.

Standardisation

Antitrust issues around standardisation are close to my heart. It is a complex field that is still very much in flux and dispute, more than some IoT players might realize. The Commission identifies five groups of potential concern. Essentially, most of them revolve around how difficult it is to (i) navigate the IP landscape, (ii) determine what licenses to which patents one might need in the first place, as well as (iii) the overall lack of transparency and a consistent approach.

These are difficult concerns to address, even more so in a field heavily lobbied by IP owners and implementers. Here, IoT companies need to be aware that the outcome of discussions and disputes in other industries, in particular on standard essential patents (who gets a license, what are appropriate rates…), will at some point move heavily into the IoT space. The Commission will take concerns raised during the sector inquiry into account for its standardisation strategy and its upcoming initiatives regarding the standard essential patent framework, so it would be advisable also for IoT players to stay close to these developments, as burdensome as that might be.

Next steps

According to the European Commission, the results of the sector inquiry “provide guidance to the Commission’s future enforcement and regulatory activity”. While the Commission also notes that any enforcement measure would “have to be based on a case-by-case assessment”, it would be surprising if there would not be at least a few potential cases in the pipeline that the regulator might pursue. Companies active in the consumer IoT ecosystem are well-advised to pay close attention to the sector inquiry results and to consider potential individual follow-up. Separately, the results were published just in time for the final phase of negotiations on the Digital Market Act and will likely have some effect there.

[Photo by Dan LeFebvre on Unsplash]